Transcript Slide 1

Chapter 8: Ethics and Business Decision
Making
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Learning Objectives
• What is business ethics and why is it
important?
• How can business leaders encourage their
companies to act ethically?
• How do duty-based ethical standards differ
from outcome-based ethical standards?
• What are six guidelines that an employee
can use to evaluate whether his or her
actions are ethical?
• What types of ethical issues might arise in
the context of international business
transactions?
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a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
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Business Ethics
• Ethics is the study of right and wrong
behavior; whether an action is fair,
right or just.
• In business, ethical decisions are the
application of moral and ethical
principles to the marketplace and
workplace.
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Why is Business Ethics Important?
• Directors and Officers owe a complex
set of ethical duties to the company,
shareholders, customers, community,
employees, and suppliers.
• When these duties conflict, ethical
dilemmas are created.
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Business Ethics
• Moral Minimum: minimum standard for
ethical business behavior really means
bare compliance with the law.
• “Gray Areas” in the Law: when the law
is “silent” on an actions legality.
– In addition, courts decide on a case by case
basis, looking for “reasonable” acts or
“foreseeable” results.
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Business Ethics
• Short-Run Profit Maximization.
– Some argue that a corporation’s only goal
should be profit maximization.
– Corporate executives should distinguish
between short-term and long-term profit
maximization.
Case 8.1 United States v. Skilling
Skilling’s conviction was upheld, Court
rejected exception to the “honest-services
fraud” for keeping the stock prices high.
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Importance of Ethical Leadership
• Attitude of Top Management.
– Management must be committed to creating
an ethical company.
– Management must set realistic goals for
production.
– Management must deal with unethical issues
quickly
• (Unethical) Behavior of Owners and
Managers.
• Periodic Evaluation.
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Creating Ethical Codes of Conduct
• Codes Must be Well-Written.
• Companies Should Provide Ethics
Training to Employees.
• Sarbanes-Oxley Act and Web-Based
Reporting.
– SO requires confidential ethics reporting
systems to “raise red flags” about practices.
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Ethical Transgressions by
Financial Institutions
• Corporate Stock Buybacks.
– Many of the greatest financial institutions
have gone bankrupt, taken over by the
federal government, or bailed out by U.S.
taxpayers.
– Buyback: management believes stock value
is “below fair value.” Instead of issuing
dividends, it buys its own shares on the open
market, boosting the price of the stock.
– Executives benefit because the value of their
stock options goes up.
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Ethical Transgressions by
Financial Institutions
• Bonuses.
– A Perverse System.
– Bonuses and Salaries before the Crisis.
– Some Bonuses were paid Early.
– Congress Acts to Limit Bonuses in the
American Recovery and Reinvestment Tax
Act of 2009.
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Approaches to Ethical Reasoning
• Duty Based Ethics - derived from
religious and philosophical principles.
– Religious Ethical Standards
– Kantian Ethics
– Rights Principles
• Outcome-Based Ethics - seek to
ensure a given outcome.
– Utilitarianism.
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Religious Ethical Standards
• The rightness or wrongness of an action
is usually judged according to its
conformity to an absolute rule that
commands a particular form of behavior.
• The motive of the actor is irrelevant in
judging the rightness or the wrongness
of the action.
• These rules often involve an element of
compassion.
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Kantian Ethics
• Premised on the belief that general
guiding principles for moral behavior
can be derived from human nature.
• The categorical imperative is a central
postulate of Kantian ethics.
– The rightness or wrongness of an action is
judged by estimating the consequences that
would follow if everyone in a society
performed the act under consideration.
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Principle of Rights
• This principle derives from the belief
that every duty gives rise to a
corresponding right.
• The belief in fundamental rights is a
deeply embedded feature of Western
culture.
• The ethicality of an action is judged by
how the consequences of the action
will affect the rights of others.
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Outcome-Based Ethics: Utilitarianism
• An action is ethical based on whether it
produces the greatest good for the
greatest number of people upon which it
has an effect.
• A cost-benefit analysis must be
performed to determine the effects of
competing alternatives on the persons
affected.
• The best alternative is the one that
produces the greatest good for the
greatest number.
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Corporate Social Responsibility
• Corporations should be interested in
impact on civil rights, environment,
consumer protection, employee safety
and welfare.
– Stakeholder Approach.
– Corporate Citizenship.
Case 8.2 Fog Cutter Capital Group, Inc.
vs. Securities Exchange Commission.
SEC’s decision was not arbitrary, capricious, or
abuse of discretion. Firm just focused on its CEO
and its shareholder profits.
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a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
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Making Ethical Business Decisions
• Six Guidelines:
– 1.
– 2.
– 3.
– 4.
– 5.
– 6.
The Law.
Rules and Procedures.
Values.
Conscience.
Promises.
Heroes.
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Making Ethical Business Decisions
• Practical Solutions to Corporate Ethics
Questions.
– 1. Make Inquiry.
– 2. Broad Discussion with all stakeholders
represented.
– 3. Decision: come to consensus.
– 4. Justification: does the consensus
withstand moral scrutiny?
– 5. Evaluation: do the solutions satisfy
corporate values and shareholders?
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a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
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Business Ethics on A Global Level
• American companies must be trained
in cross-cultural business practices.
• Monitoring the Employment Practices
of Foreign Suppliers.
– Corporate Watch groups can disseminate
information instantly around world.
• Foreign Corrupt Practices Act.
– Bribes and Accounting Practices.
© 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in
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